In response to a shortage of local output and increasing demand for renewable energy, the Indian Government is contemplating a significant reduction in import tax on solar panels. According to three official sources, discussions have taken place between the Ministry of Renewable Energy and the Ministry of Finance regarding this proposal. The aim is to lower the current import tax on solar panels from 40 percent to 20 percent, and also to seek a reduction in the Goods and Services Tax (GST) on these devices from 12 percent to 5 percent by approaching the GST Council.
The 40 percent import tax on solar panels and a 25 percent tax on solar cells were implemented in April 2022 as part of Prime Minister Narendra Modi’s initiative to foster self-reliance and reduce emissions by promoting domestic renewable energy generation and discouraging Chinese imports. However, the domestic capacity has not kept pace with the demand, necessitating imports to bridge the gap, as stated by one of the sources. This proposal seeks to address this issue.
This potential policy change aligns with the government’s broader objective of achieving 365 gigawatts (GW) of installed solar capacity by 2031-32. It is a crucial component of the government’s overall commitment to green energy, encompassing initiatives such as promoting electric vehicles and sustainable aviation fuel.
Currently, India’s annual solar panel manufacturing capacity stands at 32 GW. However, the demand for green and cost-effective energy from corporate offices, industrial units, and large factories has surged rapidly, necessitating a higher requirement of 52 GW. Although solar power constitutes over half of the country’s renewable energy capacity, the domestic supply of components has been slow to meet the demands of the industry. Additionally, the imposition of higher import taxes further hindered the growth of the sector.
According to the latest data from Projects Today, the Indian solar power sector continues to witness significant investment activity. As of 31 May 2023, there were a total of 843 solar power projects with a staggering investment commitment of Rs 5,63,853 crore. This figure highlights the substantial interest and confidence in the potential of solar energy in the country.
Contrary to popular belief, the private sector is not leading the way in this sector. In fact, it is the public sector companies that are taking the lead with 595 solar power projects, accounting for a total projects expenditure (projex) of Rs 3,25,487 crore. However, the private sector is also making a significant contribution to the growth of the solar power sector. With 248 new projects worth Rs 2,38,356 crore, private companies are playing a crucial role in expanding the solar energy infrastructure. These investment figures also demonstrate the confidence of private investors in the long-term viability and profitability of solar power projects.
Several prominent companies have emerged as key investors in the solar power sector. Hero Future Energies, Dholera Industrial City Development Limited, NTPC Renewable Energy Limited, Ayana Renewable Power Private Limited, and SJVN Green Energy Limited are among the notable names that have made substantial investments in this sector. These companies are leveraging their resources and expertise to drive the growth of solar power and contribute to India’s clean energy transition.
Overall, the potential reduction in import tax on solar panels and the proposed rollback in GST is expected to address the shortfall in local output and support the expansion of India’s solar power sector. By encouraging the use of renewable energy and reducing dependency on imports, the government aims to achieve its ambitious renewable energy targets while promoting self-sufficiency and sustainable development.